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I’m more comfortable with value investing than I am with growth stocks. I think I got burned once too often with growth stocks around the time the dot-com bubble burst. So when it comes to finding value stocks, I feel a bit more at home.
Yes, growth stocks have their place, as I wrote a couple of weeks ago. But I think holding large-cap value ETFs of some kind in a long-term diversified portfolio is very important.
Which large-cap value ETFs are right for you? It depends on what kind of investor you are. So, here are three possible choices – one each for the aggressive investor, conservative investor and general investor.
For conservative investors, have a look at Vanguard Value ETF (NYSEArca: VTV). One of the cheapest ETFs in the category, it carries an expense ratio of 0.09%. It’s up 2.33% year-to-date.
With 323 holdings and a median market cap of $81 billion, you are really getting the cream of the large-cap value crop here. The top 10 holdings only account for 25.4% of the total asset base, and they are safe and reliable investments.
The sector diversity of the Vanguard Value ETF is impressive. It has 22% of assets invested in financials, 18% in consumer goods and services, 15% in health care, 11% in industrials, 10% in technology and 10% in energy. The rest is divided between basic materials, telecom and utilities.
Here we find the kind of famous names you’d expect: Exxon Mobil (NYSE: XOM), Microsoft (NASDAQ: MSFT), Johnson & Johnson (NYSE: JNJ), Verizon (NYSE: VZ), Wells Fargo (NYSE: WFC).
It’s a very, very low turnover fund, with only 5.5% of stocks turned over in the past year. Its average price-earnings ratio is 17.4.
For aggressive investors, check out the First Trust Large Cap Value AlphaDEX ETF (NYSEArca: FTA). It has 197 holdings, so it isn’t highly concentrated and therefore too risky, but it isn’t too spread out, either. The top 10 stocks only make up 10% of the asset base, so you don’t have too much concentration risk at this level, either. It’s up 2.91% so far this year.
The expense ratio is a bit high at 0.64%, but that’s not outrageous. Since inception, it has an average annual return of 6.68% versus the S&P 500’s 6.36%.
The top holdings are in energy, as that sector has been struggling for the past several months. Holdings include: Valero Energy (NYSE: VLO), Marathon Petroleum (NYSE: MPC), Newfield Exploration (NYSE: NFX), First Solar (NASDAQ: FSLR) and Kohl’s (NYSE: KSS).
A good large-cap value ETF choice for the general investor is the Guggenheim S&P 500 Pure Value ETF (NYSEArca: RPV). At 199 holdings, it’s a bit too concentrated for my liking, but not unreasonably so. Its top 10 stocks account for 18% of the asset base. Its expense ratio is 0.35%.
The Guggenheim ETF is actually down 1.15% year-to-date, but I don’t expect that to continue. Because the sector breakdown includes 25% energy, I think when energy turns around (and it will), the fund will outperform. At a 33% allocation it’s a bit heavy in financials, but otherwise it’s comprised of 4% health care, 4% technology, 5% industrial and 16% consumer holdings.
It has some of the same names we’ve seen before – like Valero, Marathon and Newfield – but it also holds Berkshire Hathaway (NYSE: BRK-B) and Staples (NASDAQ: SPLS).
The Next Tremendous Growth Industry
Speaking of growth markets, there’s one taking off right now that no investor can afford to ignore. Why? Well, research and consulting firm McKinsey believes this market will grow as much as 14,000% larger by 2025. That’s no joke. What’s more, it’s being led by what could be the biggest technological achievement of all time. If you’re a serious growth investor, this is one story you absolutely do not want to miss out on. Tyler Laundon has all the details for you right here.